January 2016

This post was originally published on January 22, 2016 by the World SME Forum.

With this week's kickoff of the 2016 China “Business 20” (B20) proceedings in Beijing, this is an opportune time to reflect on some of the key accomplishments of the 2015 Turkey B20. As many readers of this blog know, the B20 is the premier dialogue platform of the business community with the G20 policymakers representing the most important economies of the world, and it is influential in identifying and supporting policies that are crucial for overall economic development. I believe that taking stock of the past enables us to learn from both successes and failures, and helps sustain the momentum on what worked and generated the desired impact.

Looking back at my involvement as Chair of the B20 Steering Committee, what strikes me as a major achievement is the amplification of the voice of small and medium enterprises (SMEs). I believe that, if we want our economies to have healthy and inclusive growths, this must remain as a key priority for the upcoming B20 in China.

Participants in the Turkish G20/B20 process shared the assessment that SMEs’ potential was not being fully realized. SMEs account for about two-thirds of all private-sector jobs globally and about 80 percent of net job growth. They are the engine for equitable growth and poverty alleviation. And they are the backbone of the middle class and of social stability. Yet they suffer disproportionately from limited access to markets, finance, talent, skills and innovation. In addition, regulations also often put them at a disadvantage. Until recently, SMEs had lacked an organization that would champion their cause.

With these major issues in mind, and with strong deliberations of the B20 Leadership and support from the G20 Finance Ministers, last year TOBB and the ICC officially founded the World SME Forum (WSF), with the mission to help improve the overall growth and impact of SMEs globally, by effectively tackling the key challenges they face. WSF aims to provide SMEs with effective representation and to advance the recognition of the role of SMEs in the global economy by partnering with international financial institutions (IFIs) and development agencies. WSF has membership from associations and chambers working in the SME space from all over the world.

WSF is ready to represent SME interests with regional and global bodies, and to advocate for better rules and regulations among standard-setters.

As I am on my way to Beijing, I cannot help but think that this is indeed a major achievement, which will give the SME development agenda a much better chance at succeeding. WSF can be a “bridge” across B20 presidencies, so that we can ensure continuity in the crucial SME agenda. WSF can help avoid any loss of momentum on the implementation of the recommendations we develop during each cycle.

Even better, after B20 China officially decided to continue the SME Development Taskforce, which was started for the first time by B20 Turkey, they invited WSF to be a Business Network Partner for the Taskforce. WSF will therefore be coordinating the network and will help drive the ideas that emerge from the Taskforce discussions into implementation.

Maybe it's just easier to think that the keys to economic growth lie at the national level of governance – where monetary and fiscal policies, national law and development strategies are conceived and debated. Certainly national policy is important, but it is rarely where entrepreneurs have their first experience interacting with law and policy.

The city is where people’s ideas create business, where people work and where the bustle of the economy comes alive. The city is where an entrepreneur will first interact with systems that are ostensibly created to attract and support business investment and growth.

Cities can and do engage in reforms to help improve their economic competitiveness. Often this includes the identification of a business sector deemed competitive and some strategy on how to do it better. Improved competitiveness also can include investment in more efficient transportation systems, better access to utilities and services, improved tax policies, better zoning, infrastructure investment and investment in skilled labor. While working on these complex policy and investment opportunities is rational, it often takes time to do the analysis necessary to identify the best opportunities – and it takes much longer to actually see the rewards.

Fortunately, there is a reform that cities can do almost immeduiately, and at low cost, to help support business development and improve the business environment: business entry simplification.

The Philippine Experience & Lessons Learned

In decentralized economies like the Philippines, cities play an important role in business registration. In fact, almost of one-third of the country’s business registration steps fall under the responsibility of city-level leadership.

In working with Philippine cities to reform dated, cumbersome, and confusing business registration requirements, a World Bank Group team was able to help its clients reduce registration steps from an average of 41 to just three. Cities also saw an average spike in new business registration of around 20 percent in the first year after the implementation of reform.

Retail payment systems are important to the smooth functioning of an economy. Inefficiencies in the retail payments market can have significant negative effects throughout the economy. Retail payments are defined as regular payments of relatively low value that are not time critical and where the payer and/or the payee is not a financial institution.

Cost efficiency has been at the forefront of arguments for moving from paper-based to electronic payment instruments. Studies have shown that significant savings can be achieved in the transition from cash and paper-based to electronic payment instruments.

However, inefficiencies persist, with cash still being “king” in many countries. Among the non-cash payment instruments, the check is still dominant in lower-middle-income and low-income countries and check processing can be cumbersome and costly.

As actuaries working in development, my colleagues and I in the Disaster Risk Financing and Insurance Program (DRFIP) are constantly looking for innovative ways to apply actuarial science in the fight against poverty. Because the DRFIP is a fairly new initiative — it was established in 2010 to improve the financial resilience of governments, businesses and households against natural disasters — a lot of questions are still to be asked, and lessons to be learned, about helping client countries better calculate financial risk and improve programs that change lives.

That said, exciting advancements are under way, as we learn through exchanging knowledge with experts across the World Bank and partners from other sectors. For example: Once, while on mission in Nairobi, I passed a local Social Protection colleague in the corridor and struck up a conversation that quickly turned to a challenge she was facing. The government of Kenya was aiming to develop a mechanism that would enable its Hunger Safety Net Program, a cash transfer program, to scale up financial assistance to poor families in the case of drought. However, in order to do this, they needed a better understanding of the financial costs of such a mechanism. As droughts are, by their very nature, unpredictable, trying to estimate this cost in advance was a challenge.

How can actuaries best contribute to the development agenda?

My colleagues and I thrive on looking for answers to this type of question every day. While there are other actuaries, both in the Bank and across the sector, the role we are developing from a risk-financing perspective is to help client countries quantify the financial value of unknown risks and develop financial strategies to manage them.

The results are out, and Singapore once again tops the charts in the much-talked-about Doing Business rankings! When you’re a trade or private sector development specialist, it’s the details that get you excited – like the number of days it takes to get a product from the shop floor to the market, or the annual cost savings in the millions to a small business benefiting from a new online tax-filing system.

Let me share an example from the trenches. Many cities throughout the world have struggled to keep up with the rapid pace of major technological disruptors such as Uber, an on-demand taxi-hailing service that has caused protests, regulatory confusion, lawsuits and knee-jerk bans and reversals. Singapore, for its part, has gone on to address the problem, even winning a prize in the World Bank Group’s annual Competition Advocacy Contest for its efforts to facilitate the entry of third-party taxi-booking apps.

Through strong cooperation between the Competition Commission of Singapore and the Land Transport Authority, the government was able to show that the entry of innovative technology, like third-party apps, can bring about benefits to both commuters and the taxi industry. What’s more, GrabTaxi – Uber’s competitor and one of Southeast Asia’s most successful technology startups, with a valuation of more than $1 billion – has set up its headquarters in Singapore after originally being established in Malaysia.

This is just one of the many ways that Singapore continues to show leadership and innovation in the development arena in which I work: the Bank Group’s Global Practice on Trade and Competitiveness (T&C). The country is a leader in ensuring a positive climate for both foreign and domestic investors. For the 10th consecutive year, Singapore topped the list of 189 countries measured in the Bank Group’s 2016 Doing Business ranking. Among all countries, Singapore continues to rank highest in making it easier for businesses to launch and operate. Singapore complements its competitiveness performance with trade efficiency, where it consistently ranks among the world’s top five as measured by the Bank Group’s Logistics Performance Index.

Singapore’s rapid, sustained growth and its rise as a global center for trade and finance are some of the reasons the Bank Group recently expanded its Singapore office to create its first Infrastructure and Urban Development Hub. The Hub will employ more than 200 people over the next two years and will help catalyze urgently needed investments – public, private and Public-Private Partnerships – to fill the global infrastructure gap.

The World Bank helps to design dozens of projects that assess and address the difficulties of reaching small business owners with services, which include anything from credit and technical assistance, to exports markets, value chains, technology and more.

A deeper understanding of the challenges, opportunities and risks small business owners face might help Bank staff and other development specialists to do an even better job.

For example, meet Reina, a baker in Quito, Ecuador. Reina operates a business with four workers, two ovens, and a range of sweet and salty breads popular with the neighbors. Her small shop has electricity most of the day and a reliable water connection most of the year. The display windows are filled with freshly baked rolls that hide the ovens, the small warehouse for raw materials and the occasional chaos that arises during busy weekends and holidays.

How did she get here? Reina worked for another baker for five years, learning the trade. She took a two-day course on business management from an institute on the other side of town. Then Reina took out a loan from an informal group of friends, who lend periodically to each other for business and home needs, to buy her first oven. Reina offered part-time jobs to a few relatives and a friend and trained them in the basics. And Panadería Estrella (the Star Bakery) was born. It is a story repeated thousands of times in emerging markets. This is how the shadowy informal sector creates work… and wealth.

With her investment on the line, Reina makes a number of decisions every day which can determine the bottom line of the bakery. As we go decision by decision, you will understand what she does and what she needs more easily. One decision leads to another and another.

Many governments in the Middle East and North Africa are facing political, security and economic instability. The Kurdistan Regional Government (KRG) has been fighting and striving for stability for decades, facing many hurdles and political challenges for its very survival. KRG, which represents the Kurdistan region in northern Iraq, has notched up some successes since it achieved full autonomy in 2005. Its reform agenda is full and the will to change is sincere. The World Bank Group is supporting KRG to seek solutions and implement strategies toward socioeconomic development and growth.

During our most recent mission, in December, as we walked through the souk in Erbil, the capital of KRG, we noticed that women were only the shoppers and sometimes the bill-payers in restaurants – but rarely did we see women who were shopkeepers.

That's not surprising, since women in Kurdistan barely participate in economic activity. In fact, the female labor force participation rate is among the lowest in the region, and in the world in general, at only 11 percent[1]. Interestingly, only about one out of 100 working-age women in Kurdistan are employed in the private sector.

Why is it that KRG women barely participate in the labor force? And why is the representation in the private sector very low?

In an effort to better understand this phenomenon, we conducted interviews and held discussions with civil society organizations, representatives from the private sector and government officials. We found two types of constraints facing women: first, laws and regulations; and, second, social norms.

Legislation:

Greater benefits and incentives are found in the public sector. Pensions, working hours and flexible leave are better regulated (and more desirable) in the public sector than in the private sector.

There are some restrictions on women’s employment in certain sectors that are considered hazardous or arduous as defined by law, such as mining and construction.

Why does it matter?The Women, Business and the Law’s 2016 data (WBL) found that empowering women to participate in the labor market can benefit the entire economy. Restrictions on women’s employment don’t only affect women. After examining laws and regulations in 173 economies, the report found that the gender wage gap is smaller in economies where there are no restrictions compared to economies where there is at least one restriction. The 2016 Getting to Equal Report also finds that providing incentives for women to work leads to greater participation in the labor force. For example, more women reported received wages (that is, they worked in the formal sector) in economies where the government provided or subsidized child-care services.

Social Norms:

Women drop out of the labor force as their main family responsibilities increase. Gender roles are still traditional in KRG. Women are usually caregivers and men are the breadwinners. Most women drop out of the labor force in the 25-to-29 age range, coinciding with prevailing childbearing ages.

Households feel safer for their women to work in the public sector, since the number of employees is higher and there are better inspection mechanisms in the public sector than in the private sector.

Society looks down upon women who work in the private sector, since working hours are longer and working in the private sector requires more interaction between men and women.

Putting people first by targeting health, education and the labor market, including girls' education and women’s employment.

Infrastructure

Economic prosperity

Governance

The World Bank team is working with KRG to achieve these four main pillars by providing technical assistance and by aiming to recommend strategies to implement the main policies set out in Vision 2020. Strategies range from strengthening existing social security laws and institutions to empowering women’s economic inclusion and girls’ education.

What are the next steps?

KRG is working with the World Bank team on legislative and institutional reform. Meetings and high-level discussions are taking place with parliamentarians and other government representatives to finalize strategies to boost women’s employment and to raise the awareness on the impact of women’s employment. Inclusion of half of society will affect not only households, but also entire economies. All it takes is the willpower for change. I'd like to head back to the souk in Erbil in a few years, and I'll hope to see women actively and gainfully employed there.